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Income Tax Appellate Tribunal, MUMBAI BENCH “A”, MUMBAI
Before: SHRI B R BASKARAN & SHRI AMIT SHUKLA
आदेश ORDER �ी अिमत शु�ला, �या स: PER AMIT SHUKLA, JM:
The aforesaid appeal has been filed by the assessee against impugned order dated 29.08.2011, passed by Ld. CIT(Appeals)-22, Mumbai in relation to the penalty proceedings under section 271(1)(c) for the assessment year 2008-09. In the grounds of appeal
, the assessee has raised following grounds:-
1. On the facts and circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) erred in confirming concealment penalty of Rs.7,22,320/- being the penalty @ 100% holding that the explanation 2 आनंद एम गु�ता Anand M Gupta ITA 7251/Mum/2011 of the appellant is not bona fide and the AO has rightly imposed penalty under section 271(1)(c) for concealing and furnishing inaccurate particulars of income by claiming wrongful deduction of Rs.21,25,096/-. Confirming the levy of penalty without properly appreciating the facts and the reasons for the claim under section 24 of the I. Tax Act and the detailed submissions filed by the appellant explaining that there is no concealment nor filing of inaccurate particulars of income by claiming wrongful deduction of Rs.21,25,096/-. Confirming the levy of penalty without properly appreciating the facts and the reasons for the claim under section 24 of the I. Tax Act and the detailed submissions filed by the appellant explaining that there is no concealment nor filing of inaccurate particulars is bad in law and the same needs to be cancelled”.
2. The brief facts qua the levy of penalty are that, the assessee in the return of income has claimed loss of Rs.21,25,096/- under the head “Income from House Property”. The assessee has booked a flat in the building known as “Evita” at Hiranandani Garden in Powai for an aggregate consideration of Rs.3,47,51,258/-, vide Sale Agreement dated 08.11.2004. For the purchase of the said property, the assessee taken loan from HDFC Bank on which interest of Rs.21,40,286/- was paid during the previous year. The construction of the said building was completed in financial year 2006-07 and the builder has received occupation certificate from BMC as on 15.06.2007. In turn builder has also offered the possession to the assessee, vide letter dated 21.06.2007, requiring the assessee to pay the ‘Maintenance charges’ and accordingly, final payment was made by the assessee on 02.08.2007. Thus, the entire payment was made as well as the possession was also received by the assessee during the relevant financial year 2007-08. However, the assessee had made a request to the builder to delay the possession, due reasons like, assessee 3 आनंद एम गु�ता Anand M Gupta ITA 7251/Mum/2011 wanted to customize the flat by undertaking civil work and wood work to suit his personal needs and also to finish it in a habitable condition so as to occupy and use the flat for the purpose of residence. The actual possession of flat was deferred and was finally taken on 13.04.2009. In the return of income, the assessee showed the annual letting value (ALV) of the property on municipal valuation rate which was Rs.1,31,500/- from the said ALV, Municipal taxes of Rs.1,09,800/- was reduced and deduction under section 24(a) @ 30% was claimed. That apart, assessee also claimed deduction of interest on borrowed capital amounting to Rs.21,40,286/-. Accordingly, loss of Rs.21,25,096/- was computed under the head “income from house property”. The working of the computation under the head “income from house property” was accordingly, declared in the following manner:- Municipal valuation 131500 Gross Annual Value 131500 Less: Municipal Tax paid 109800 NET ANNUAL VALUE 21700 Less: Deduction u/s 24-repaqirs 6510 6510 NET INCOME FROM HOUSE PROPERTY BEFORE INTEREST 15190 Proportionate Income From House Property 15190 Less: Deduction u/s 24 – Share of Interest on Borrowed Capital 2140286 2140286 NET INCOME FROM HOUSE PROPERTY -2125096
3. However, in the course of the assessment proceedings, the Ld. Assessing Officer held that the fair rental value of the flat was in the range of Rs.100/- per. Sq. ft. in the financial year 2007-08 and required the assessee as to why same rate should not be taken as ALV. The assessee, in response 4 आनंद एम गु�ता Anand M Gupta ITA 7251/Mum/2011 furnished various documentary evidences to show that assessee was not in physical possession of the flat and therefore, there is no question of determining the ALV. The assessee had declared suo motto the deemed let out value out of abundant precaution as per “Maharashtra Rent Control Act”. The Ld. AO held that in absence of possession of the house property, no income or loss from the said property can be computed. Accordingly, he disallowed the claim of loss of Rs.2,25,096/-.
4. Now, the penalty has been levied on said disallowance of loss for furnishing wrong particulars and also concealing the taxable income. In response to the show cause notice in the penalty proceedings, the assessee has reiterated its contention, however Ld. Assessing Officer held that the assessee has computed the income from house property with sole intention of claiming loss on account of interest paid on borrowed capital. Accordingly, he levied the penalty of Rs.7,22,320/- after detailed discussion and referring to various decisions. Such a penalty has been confirmed by Ld. CIT(A) also.
5. Before us, Ld. Counsel Shri Vijay Mehta submitted that the whole premise of the Ld. CIT(A) for confirming the penalty is that, assessee has claimed before the AO that he is not liable for tax because assessee had specifically stated that, since he has not taken the possession of the flat formally by the builder, therefore, ALV has been shown by way of abundant precaution on the municipal ratable value. However, he submitted that such an observation of Ld. CIT(A) is not correct an in support, he drew our attention to letter 5 आनंद एम गु�ता Anand M Gupta ITA 7251/Mum/2011 dated 04.12.2010 filed before the AO during the course of the assessment proceedings. In the said letter, the assessee has duly explained the entire facts which are as under:-
The assessee has acquired the subject property vide agreement for sale dated 8th November, 2004, which was duly registered with the Sub- Registrar on the same day; The aggregate purchase consideration of the admeasuring 4575 sq. ft. is Rs.3,68,28,586/-; The purchase of flat was furnished by HDFC Bank and the assessee had paid interest of Rs.21,40,286/- during the previous year relevant to assessment year under consideration post completion of construction of building; The construction of the building was completed in the year 2006-07; The builder received the BMC occupation certificate on 15th June, 2007; Builder offered the final possession to the assessee vide their letter dated 21st June, 2007 requiring them to pay the maintenance charges and other incidental expenses and agreeing to give physical possession of the fat after 45 days on receipt of payment. The assessee made final payment on August 2, 2007 towards Maintenance charges including BMC tax for the period June 2007 to May 2009, Membership fees and Society formation fees; The assessee received rebate of Rs.6,72,066/- as per Bi of Rebate dated 18th July, 2007 bearing 6 आनंद एम गु�ता Anand M Gupta ITA 7251/Mum/2011 No.032/2007-2006/245 as the assessee had required the builder not to provide certain fittings in both room, kitchen, toilet, electrical fittings and other utilities as per standard specification as the assessee desired to customize the relevant portion of civil work and fixtures and fittings to suit his personal needs; In essence though the flat was ready for physical possession it was not fully finished in a habitable condition to occupy and use for the purpose of residence without completing the unfinished civil work and fixtures and fittings for bathrooms, kitchen, toilet and other utilities, which were required to be redone post possession. Since assessee was having constraint of finance and not in a hurry to occupy the flat immediately for his residential use or for letting out, the actual physical possession of the flat was deferred and taken from the builder on 13th April, 2009 as per the certificate issued by Lake View Developers dated April 13, 2009 and checklist dated 13th April 2009 confirming that changes in flat carried out by builder as per assessee’s specification and handover of keys; As the assessee made full payment and maintenance charges including municipal taxes and became full owner of the property with unequivocal right to take possession at his own discretion in respect of property constructed as per contract with the builder and readily available for the purpose of furniture fit outs, he offered the annual ratable 7 आनंद एम गु�ता Anand M Gupta ITA 7251/Mum/2011 value as per BMC tax computation as income from deemed let out house property as per sec. 23(1)(a) as assessee has another house property in Colaba, Mumbai, offered as Self Occupied Property by exercising his option u/s 23(4); After the physical possession in April 2009 the assessee took up the interior decoration and balance finishing work like civil work, electrical wiring, furnishing etc. during July/December 2009 and the flat became fit and habitable for residential use and capable for letting out effectively from January, 2010. The assessee has acquired flat No.2051 in his name and similarly flat No.2401 was acquired by his wife Mrs. Madhu Gupta, assessed with you under PAN AAFPG 1617C to be used as a single residence unit akin to a Pent House combining a large area of 9150 sq.ft.. Such a larger area premises has a very limited rental demand in the market and its fair rental value cannot be bench marked to a small size flat”.
Thereafter the assessee had referred to various decisions as to why municipal value should be adopted and finally summarized the entire contention in the following manner: 1. Even though the physical possession of the subject flat was not actually received by the assessee, the assessee had suo moto declared deemed let out value as measure of abundant caution as BMC Occupation Certificate was received, Municipal Taxes demanded by the builders for the period 8 आनंद एम गु�ता Anand M Gupta ITA 7251/Mum/2011 under consideration were paid and the assessee was rightful owner of the flat;
The actual physical possession of the flat in habitable condition was received only on 13th April 2009 as amply evidenced by the supporting documents. In fact and in law the condition of the property was not capable of being let out nor assessee could have let out as there was no physical possession during the previous year relevant to assessment year under consideration;
The property under consideration is subject to Maharashtra Rent Control Act and assessee being an individual self occupant to whom the provisions of Rent Control Act would apply and therefore in respect of property available for self occupation, he cannot reasonably be expected to let out the same from year to year on rent higher than standard rent;
The offering of deemed let out value on presumption of ownership right is rebuttable as an inadvertent mistake and it cannot be capitalized for the purpose of taxation notional income.
In view of above we would like to respectfully submit that your proposal for adopting the fair rental value in respect of flat in Evita offered for tax deemed let out property is not justified and not tenable in law. We therefore request you to kindly accept the annual value based on the Municipal valuation as notional deemed rental income for the purpose of assessment of income form house property”.
Thus, the assessee’s entire contention and explanation was bona fide and duly supported by various decisions. In any case, he submitted that, now it is a settled law that charge is levied on the owner of the house, immaterial of the fact whether the owner is in possession or enjoyment of the property. In support, he relied upon the decision of Hon’ble 9 आनंद एम गु�ता Anand M Gupta ITA 7251/Mum/2011 Bombay High court in the case of CIT vs Union Land end Society vs CIT reported in [1972] 82 ITR 794.
On the other hand, Ld. DR strongly relied upon the order of the CIT(A).
We have heard the rival submissions and perused the relevant finding given in the impugned order as well as material placed on record. From the discussion as made above, it is evident that the assessee did got the possession from the builder after the completion of building and occupation certificate obtained from Bombay Municipal Corporation (BMC) and had also made the entire payment as agreed in the sale agreement. It is also an admitted fact that, the assessee in the return of income had taken municipal ratable for the purpose of ALV under section 23(1)(a). From such computation, the assessee has claimed the interest paid on the borrowed capital for the said house property. The Ld. AO has disallowed the loss claimed under the head “income from house property” on the ground that, the assessee himself has admitted that, he has not taken the actual possession in the relevant financial year. Such contention of the Ld. AO cannot be upheld, because it cannot be denied on the present facts that the assessee was the actual owner of the said property during the relevant previous year and once the assessee was the owner of the house property, then charge is created for the determination of income from house property by way of ALV. The basis of assessing the tax and income from house property is the ownership of the property and not the actual realization of income. The ownership by itself attracts the charge. This proposition has been upheld by 10 आनंद एम गु�ता Anand M Gupta ITA 7251/Mum/2011 the Hon’ble Bombay High Court in the case of CIT vs Union Bank Building Society (supra). The relevant ratio of the Hon’ble High Court reads as under:- “The word “owner” in section 9 of the Act must be construed in its ordinary meaning of a legal owner under the general law. The liability to income-tax on property depends on the fact that the assessee is the owner of the property. Section 9 deals with income from property and the income from that source is an artificially defined income. The assessee is made liable to pay the income- tax on the value of the property computed in the manner prescribed. That liability does not depend either on the power of the owner to earn the income therefrom or on the power or capacity of a person to let it out or his own power to receive rent or income from bona fide annual value. The word “owner” does not imply a person who has the capacity to earn profit from property or to rent it out. But, unless there is some vestige of ownership in a person he cannot be called the owner, within the meaning of section 9 of the Act, however wide the connotation of that word might be. In this view the purchasers were not “owners” within the meaning of section 9 and the assessee continued to be owner of the bungalows sold”.